The Argentine Economy: An Economic History of Argentina
By Aldo Ferrer
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Aldo Ferrer
Aldo Ferrer was Professor of Economics at the University of Buenos Aires and is former Minister of Economics for the Province of Buenos Aires.
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The Argentine Economy - Aldo Ferrer
THE ARGENTINE ECONOMY
THE
ARGENTINE
ECONOMY
ALDO FERRER
Translated by MARJORY M. URQUIDI
UNIVERSITY OF CALIFORNIA PRESS • BERKELEY AND LOS ANGELES1967
University of California Press
Berkeley and Los Angeles, California
Cambridge University Press
London, England
Copyright © 1967 by The Regents of the University of California
Translated from La Economía Argentina
First published in Mexico City and Buenos Aires by
Fondo de Cultura Económica, 1963
Published with the assistance of a grant
from the Rockefeller Foundation
Library of Congress Catalog Card Number: 66-25669
Printed in the United States of America
To Susana, Carmen, Amparo,
and Lucinda
Preface
TO THE ENGLISH LANGUAGE EDITION
Since I finished writing this book, revised statistics on the Argentine national product for the postwar period and important contributions by several economists have appeared. These, together with my own recent research, highlight some problems that were not emphasized in this book—among them, the low level of efficiency in manufacturing and the new prospects for agricultural production and exports. A very active discussion on the strategy of industrial growth and the importance of foreign trade in manufactures to promote expansion and greater efficiency has been taking place. Furthermore, recent data show a better record of economic development than the one considered in this book, which is based on earlier data. I have added a few footnotes to take this into account.
The recent contributions and data mentioned above do not change the essential facts I deal with in the final chapters of this book. My basic conclusions on the current problems and prospects of the Argentine economy remain unchanged. That is why I prefer to introduce only minor changes into this edition. I have included statistical tables with economic and social data of special interest, and I have eliminated, as unnecessary in this edition, an appendix explaining the principal economic terms used in the text. Furthermore, I have condensed or discarded a few footnotes and paragraphs in the Spanish edition which I considered superfluous to this one.
A. F
Buenos Aires, September, 1966
Preface
TO THE FIRST EDITION
Argentina presents one of the most paradoxical cases in contemporary economic experience. Although a country with all the conditions necessary for rapid and sustained development, its rise in output since 1948 has barely kept up with its population increase, and the living standards of large sectors of its society have not advanced or have even deteriorated.
Furthermore, recently there has been a pronounced contraction in economic activity with a consequent unemployment of labor and productive capacity and a drop in income levels. There is little doubt that these trends are directly related to the country’s prolonged political crisis and instability as well as to the loss of a feeling of common destiny among its different social groups.
I am convinced that there can be no adequate understanding of the reasons for this stagnation (including current short-term problems) without an analysis of the historical roots of the present situation and the changes in the world economy that traditionally have played a leading role in Argentine development. Ultimately, current problems are explained by the country’s inability to readjust its economic structure to the conditions of modern economic development and to a new international situation.
In this book I shall try to analyze the economic formation of Argentina. Nearly two decades of work on the country’s problems, in both an academic and an official capacity, have persuaded me that only a historical approach permits a systematic and broad understanding of the problems of national development and, therefore, the framing of a policy to strengthen the economic structure, to accelerate the rate of development, and to raise the living standard of the population. I hope that this work will stimulate empirical research and an analysis of Argentine development, making clear its trends and defining its objectives in this second half of the twentieth century.
In Argentina there is an increasing interest in economic topics, particularly those related to present conditions. Of course, no intense process of growth and of national purpose is possible unless the Argentine people are educated in the causes of growth so that they may acquire a development mentality.
My book is an attempt to satisfy the rising concern with these topics and to make them comprehensible to the general public. For this reason, I have added an explanation of terms commonly used in macroeconomic analysis which are indispensable to the text. The economist will find that some passages go into too much detail and that others are not technical enough.
The available bibliography on Argentine economics is still inadequate for the student of the economic and social sciences who wishes to view the problems of Argentine development in their historical perspective. Irrespective of the wide range of readers for whom it is intended, this book may fill part of the void by encouraging new generations of students and specialists in the social and economic disciplines to build a framework of reference permitting the tools of economic analysis to be usefully applied to the realities of my country.
A.F.
Washington, D.C., December, 1962
Contents
Contents
Introduction
PARTI THE REGIONAL SUBSISTENCE ECONOMIES
1. TRADE AS A FACTOR IN THE DISSOLUTION OF THE FEUDAL SYSTEM
2. FORMATION OF THE ECONOMY OF COLONIAL AMERICA
3. THE REGIONAL SUBSISTENCE ECONOMIES OF PRESENT-DAY ARGENTINA
4. STRUCTURE AND DYNAMICS OF THE SYSTEM
PART II THE TRANSITION (The End of the Eighteenth Century to 1860)
5. BUENOS AIRES AS AN ENTREPÔT
6. THE EXPANSION OF CATTLE RAISING
7. DEVELOPMENT OF THE LITORAL
8. STAGNATION IN THE INTERIOR
PART III THE EARLY EXPORT ECONOMY (1860-1930)
9. TECHNICAL PROGRESS AND THE INTEGRATION OF WORLD ECONOMY
10. EXPANSION OF AGRICULTURAL AND LIVESTOCK PRODUCTION
11. DEVELOPMENT OF THE PRIMARY-EXPORTS SYSTEM
12. BREAKDOWN OF INTERREGIONAL EQUILIBRIUM
PART IV THE NONINTEGRATED INDUSTRIAL ECONOMY (1930-)
13. CHANGES IN THE WORLD ECONOMY SINCE 1930
14. NEW CONDITIONS OF DEVELOPMENT
15. DEVELOPMENT OF THE ECONOMY AND ITS LIMITATIONS
16. CONSOLIDATION OF THE INTERREGIONAL IMBALANCE
17. INFLATION AND STAGNATION: ECONOMIC POLICY AFTER 1950
PART V THE PRECONDITIONS OF AN INTEGRATED INDUSTRIAL ECONOMY
APPENDIX
INDEX
Introduction
The method followed in this book is to analyze the formation of the Argentine economy by differentiating between the historical stages within which the economic system has developed according to a certain pattern. This method can easily be applied to Argentina where the various structures and processes are distinctly separate.
The work of Celso Furtado on the Brazilian economy¹ underlines the value of this type of approach to the formation of an economy. Dispensing with the traditional economic historian’s mass of data, the economic system can be defined in its different historical circumstances. This definition of stages or models enables the economist to apply modern analytical tools to the basic information and estimates available and to describe development in terms intelligible to the contemporary reader. Furthermore, this type of approach permits a more penetrating analysis of the causes of the present situation and of how these causes have evolved over the years. In this way, problems that cannot be examined systematically and thoroughly by short-term analysis are made much clearer and placed in their proper perspective. This method also compels the economist to define the role of social forces in development. Although these forces, which actually determine the process of history, are outside the sphere of problems that the economist usually deals with, they must be understood in order to correctly interpret the formation of an economy.
By the above method, four separate stages in the economic development of Argentina can be distinguished. The first covered the period from the sixteenth to the end of the eighteenth century. I designate it the stage of regional subsistence economies
because it was characterized by the existence in different parts of the country of several regional socioeconomic units of very low productivity, mainly supplying domestic consumption. In this stage, these regional economies were not affected by the periods dynamic element, which was the expansion of markets.
The second stage extended from the end of the eighteenth century to about 1860, and I call it the ‘stage of transition." This period marked the beginning of an activity, the production of hides and other livestock products, that brought Argentina an increasing share of world trade. Moreover, after the liberalization of the Spanish commercial system at the end of the eighteenth century and independence in 1810, the port of Buenos Aires could take full advantage of its geographic position and act as an entrepôt for foreign trade.
The third stage, which I call the economy of primary exports,
started around 1860, when Argentina began to participate actively in the expanding international trade, and ended with the world depression of 1930. This was the period when the increase in agricultural and livestock exports, the arrival of large groups of immigrants, and the inflow of foreign capital transformed the economic and social structure of the country in just a few decades.
The stage that I refer to as the nonintegrated industrial economy
began in 1930 and has not yet ended. It is characterized by the existence of a diversified economic and social structure in many ways comparable to that of the advanced economies. The Argentine economy, however, is not integrated because it has not developed basic industries, and therefore, its growth and level of employment depend on imports financed by agricultural exports.
Within these four stages can be clearly defined the role of the economic system and of the factors that determine its evolution and transformation. It is also possible to analyze in each stage the level of development reached and the function of the country’s regions. The reader will see that my analysis of the experience of the last decades, that is, the stage of the nonintegrated industrial economy, leads me to the conclusion that the system has entered a crisis that impedes further evolution and growth. In the face of this development crisis, I try to identify the different courses marked out by the social forces operating in Argentina. I also argue that the future growth of the national economy and a rise in material and cultural living standards can be achieved only through integration of the economic structure, that is, the formation of an integrated industrial economy. And I end by discussing the conditions needed to make this possible.
I have a final warning for the reader who now embarks on my attempt to interpret the formation of the Argentine economy. Because external factors have always played a decisive role in the country’s development, I begin each part with the setting of the stage that will be analyzed. This description necessarily involves a series of data and details about the world economy of each period that are probably already familiar to the reader.
1 I Celso Furtado, The Economic Growth of Brazil (Berkeley and Los Angeles:
University of California Press, 1963), chap. 1, and A economic brasileira (Rio
de Janeiro, 1954).
PARTI
THE
REGIONAL SUBSISTENCE
ECONOMIES
(The Sixteenth to Eighteenth Century)
1. TRADE AS A FACTOR IN THE DISSOLUTION
OF THE FEUDAL SYSTEM
The Dynamic Role of Trade
From antiquity until the Muslim expansion of the seventh century, the Mediterranean was the natural means of communication between all the civilizations of the Ancient World. After the fall of Rome, the barbarian kingdoms founded in the fifth century preserved the most evident and essential feature of ancient civilization: its Mediterranean character.
The Muslim conquest gave control of the Mediterranean to the Arabs who, established in Africa and Spain and with strongholds in the Balearic Islands, Corsica, Sardinia, and Sicily, cut Western Europe’s traditional line of communication with the outside world. Only Constantinople managed to maintain its position in the Aegean, the Adriatic, and on the southern coasts of Italy.
The isolation imposed by the Arab expansion on the peoples of Western Europe laid the bases of the social order of the early Middle Ages¹ and of the closed economies that produced for local consumption. These economies were characterized by a lack of external markets and the almost complete absence of trade with other regions. Economic activity depended on agriculture, and almost all the working population was engaged in rural production. Landownership, concentrated in the hands of small groups, was the mainspring of the political and social order. The feudal lord used his share of the production of the economy of his fief to support the court and its retainers, who not only performed personal and military services, but also did craft and construction work for die ruling class. The active population not engaged in agriculture was mainly composed of the feudal court and its retainers. Goods, other than food, consumed by the agricultural workers were produced domestically.
From a dynamic point of view, the distinctive feature of the feudal economy was the absence of any technical progress and the consequent stagnation of productivity. With no outside trade and no improvement in the methods and organization of rural activities, production varied according to the effect of climate and other circumstances on the harvest.
Capital accumulation was almost nonexistent. The low level of productivity barely allowed rural workers to subsist and to pay tribute, mainly in the form of crops, to their feudal lord. The latter, the only component of the feudal economy who could have accumulated capital, used his agricultural surplus to supply his court. In this way, no portion of available labor was used to expand the capital existing in the economy through improvements in agricultural methods and the production of tools and equipment for farmers and artisans. Surpluses belonging to the Church did not alter the system.
In the absence of technical progress and of capital accumulation in the feudal-closed economy, there was no possibility of a rise in the farmer s productivity and income. Such low levels of productivity meant that the economic structure could not change, because most of the population had to work in the fields to produce basic food crops. The lower the level of productivity in an economy, the higher the proportion of the active population employed in producing food and other articles essential to subsistence. With agricultural productivity at a standstill, there could be only a limited transfer of the active population to crafts and services. This transfer would have been the logical answer of supply to the diversification of demand created by a rise in the living standard.
Given these conditions, there was only one way to increase the productivity of the system: by carrying on trade with other regions. Because the difference in natural resources and in the knowledge of acquired techniques determined different cost structures among the various economies, a given commodity could be produced and traded advantageously and a greater volume of goods made available to the community. The promoters of this precarious division of labor among the different regions were the traders themselves. Since trade was the only way to increase productivity within the feudal economy, it became the dynamic sector par excellence, and it made possible the accumulation of capital by those who were not feudal lords. The role of these surpluses was altogether different from that of the surpluses appropriated by the feudal class. The latter were consumed, whereas the former went back into economic activity and intensified trade. The accumulation of wealth in the hands of emerging commercial groups, the rise in productivity generated by their activities, and the consequent changes in the social and economic structure opened the way for the dissolution of the feudal system and the birth of commercial capitalism, which had as one of its results the colonization of America.
Trade Routes
The renaissance in trade during the Middle Ages was associated with maritime traffic. The two centers of commercial expansion were the Baltic and the North Sea to the north and the eastern Mediterranean to the south. Travel along these waterways gradually re-established the trade between East and West that had been interrupted by the Muslim conquest. In the ninth century, the expansion of the Scandinavians brought the peoples of the Carolingian Empire, England, Scotland, and Ireland into contact with the Slavs and, down the Dnieper and Volga rivers, with the trade of the Orient in the Bosporous and the Caspian Sea. By way of the North Sea and the Baltic, the Orient exchanged its spices, medicines, porcelains, and fine fabrics for the furs, slaves, lumber, metals, and cloth produced by the Slavs and the peoples of northeastern Europe.
To the south in the eastern Mediterranean, Constantinople maintained the Christians' commercial positions against the Arab onslaught. After Constantinople, Venice on the Adriatic coast was the most important city in the region. The great markets of Byzantium encouraged the growth of active trade.
From the ninth century on, the cities of the Italian peninsula— Naples, Gaeta, Amalfi, and Salerno to the west; Bari and especially Venice to the east—no longer limited their trade to Constantinople and the Christian ports of Asia Minor, but dealt increasingly with the Arabs of Africa and Syria. Venice thus became the leading commercial city of the Middle Ages, a position it held until the fifteenth century, when new routes to the Orient and the discovery of America shifted the center of gravity of trade. These cities, but principally Venice, created economic units that were engaged in commerce and the crafts rather than in subsistence agriculture.
They generated the forces that spread out and destroyed the feudal system.
In the Mediterranean» the resurgence of trade among the Christian peoples, which had been initiated by Venice and the cities of the Byzantine Empire, received a strong impulse from the defeats suffered by Islam after the tenth century. The victories of Pisa and Genoa were followed by the First Crusade, which restored control of the Mediterranean Sea to the Christian world. The reconquest of Corsica, Sardinia, and Sicily in the eleventh century assured Christian supremacy.
Trade between the Christian peoples of the West and the peoples of the Orient was intensified with the liberation of the Mediterranean from the Arabs. Venice and the Italian cities were joined by other centers of growing commercial importance like Marseilles and Barcelona.
The products exchanged were chiefly luxury articles from the Orient and raw materials and food produced in the West. Western Europe imported from the Orient spices, medicines, sugar, precious stones, and, to a lesser degree, dyes, cotton and silk for its textile industry, fine fabrics, and gold and silver ornaments. The West exported wool, hides, metals, food products, and wool and linen cloth.
Trade in the north of Europe, which had originated with the Scandinavians, was newly spurred by the Germanic thrust to the east. The founding of Teutonic cities on the Baltic Sea and their monopoly of Slavic trade was consolidated, from a commercial standpoint, when the new cities banded together. The ports on the North Sea became members of this confederation of Baltic cities known as the Hanseatic League, which maintained its commercial hegemony in the north of Europe until the end of the Middle Ages.
The Scandinavians were supplanted by the Germans as the result of the opening of a new line of contact with the Orient The traditional trade routes they had established along the Dnieper and Volga rivers were closed in the twelfth century. Communication between northern Europe and the Mediterranean was reestablished by maritime route around the Spanish Peninsula, with Bruges emerging as the entrepôt for traffic from north and south.
The trade of the Hanseatic League differed substantially from Mediterranean trade. The Hanseatic cities exported products from their undeveloped hinterland, mainly food, raw materials, and ship stores. From England and France they imported wheat, wine, salt, metals, cloth, and beer. Bruges became an important trading center where products of northeastern Europe were exchanged for those of the Slavs as well as for articles brought from the Orient by Venetian and other Mediterranean merchants.
Limitations on Structural Changes
The impact of the commercial expansion of the eleventh to the fifteenth centuries on the social and economic structure of Western Europe was conditioned by the very real difficulties of trade in that period. The primitive methods of land transport, the hazards of maritime navigation owing to imperfect nautical instruments, and the dangers of piracy made transportation extremely expensive; and the high profit margins of the traders—largely justified by the risks of their activity—multiplied the cost to the consumer. The levies and abuses imposed on trade by the fragmented political power of feudalism also impeded commercial development.
These conditions meant that only merchandise of small bulk and great value would be worth the expense of medieval commerce. A few raw materials were also imported that were essential to the work of the artisans in the cities of Western Europe, especially of those who produced for external markets.
The composition of demand corresponded logically to this structure of supply. Given the low living standards of the agricultural sector, which represented more than 90 percent of the total population, the only people who could purchase luxury imports were members of the feudal landowning class, in part ecclesiastical, and —as the process of urbanization intensified and commercial groups gained importance—the new merchants. Raw materials for industry, principally the textile industry, were mainly bought by artisans who were able to sell their products abroad or to local wealthy groups for high prices.
From the time that European trade began to revive until the technological revolution of the eighteenth century, the expansion of markets through Europe’s widening commercial contacts was the dynamic element in development. Even at the end of the eighteenth century, Adam Smith attributed economic progress primarily to specialization created by the expansion of markets.
Technical progress, with its revolutionary effect on the functions of production and the economic structure, still had not become the main stimulus to development. The lack of technological advances restricted the impact of widening markets on the transformation of the internal productive structure and, ultimately, on the rate of growth in output. It operated on two planes: agriculture and the creation of food suipluses, and the urban activities producing exportable goods.
The emergence of cities with populations engaged in crafts and services related to commercial traffic posed problems of supply that were never solved in the Middle Ages. Supply was limited in two ways. On the one hand, low agricultural yields prevented the creation of surpluses to feed the cities, and the great difficulty of transporting bulky and heavy products over long distances restricted the area of urban supply to adjacent fields. On the other hand, the same conditions prevented the importation of food. Regular supplies of food from abroad, which began in the second half of the nineteenth century, were to influence profoundly the economic structure of England and the countries of Western Europe.
Technical progress and improvements in the organization of the crafts and other urban activities were also slight. Therefore, any increase in the volume of exports involved a proportional increase in labor. This is typical of the development in Western Europe of certain domestic crafts and activities producing for external markets, particularly the textile industry. The latter concentrated the first large groups of workers dedicated to a specific activity, as in the cities of Flanders and Spain, especially in Toledo where the production of cloth began to flourish in the thirteenth century. Because of lack of technical progress, the expansion of export activities in the Middle Ages was characterized by the employment of more labor at the same levels of productivity.
As noted before, commercial activities were the dynamic sector par excellence in the feudal economy because, although their effect was limited by extrinsic conditions, they were the only sector that raised over-all productivity. Another factor that influenced the transformation of the internal productive system was demographic pressure. With technological levels and feudal institutions unchanged, the available land could not absorb all the population growth. Consequently, the peoples of Western Europe were driven to emigrate, chiefly toward the east, and to extend occupied territory.
On the other hand, part of the